Just before Christmas 2014, FASB issued Accounting Standards Update No. 2014-18, Accounting for Identifiable Intangible Assets in a Business Combination, a consensus of the Private Company Council (“ASU”). The ASU allows a private company (i.e. not a public or not-for-profit entity) to choose not to recognize two types of intangible assets separately from goodwill following a business combination:
- Customer-related intangible assets that cannot be sold or licensed independently from other assets of a business.
- Noncompetition agreements.
Some customer-related intangible assets may not meet the exception created by the ASU and would continue to be recognized separately from goodwill. The ASU indicates examples of such assets include mortgage servicing rights, commodity supply contracts, core deposits and customer information (for example, names and contact information).
Private companies must decide whether or not to elect to adopt these recognition exceptions for the first transaction that occurs in fiscal periods beginning after December 15, 2015. Early adoption is permitted. Customer-related intangible assets and noncompetition agreements that have been recognized prior to the exception election provided by the ASU would continue to be subsequently measured, e.g. for purposes of goodwill impairment testing.
Companies that elect to adopt the exceptions enumerated in the ASU must also adopt the accounting alternative for amortizing goodwill.
The FASB approved the ASU by a 4-3 vote in November 2014.
- Is Private Company GAAP a Threat?
- Purchase Price Allocations and the PCC
- Valuation of Customer-Related Assets
- Non-Compete Agreements: Valuation Issues in GAAP and Tax Engagements
- FASB Accounting Standards Update No. 2014-18, December 2014
- FASB Accounting Standards Update No. 2014-02, January 2014